The advantages and disadvantages of employee turnover

4 April 2024 / Insight posted in Article

Do you feel like you’re struggling with employee retention in your organisation? Studies from UK Money suggest that the UK has one of the highest employee turnover rates in Europe, and every year, an average of 16.8% of employees leave their jobs in the UK.

Moore Kingston Smith People Advisory can help organisations explore some of the reasons why employee turnover happens, the advantages and disadvantages, and how it effects overall business output. This article will review the above, as well as look at how organisations can improve employee retention.

Average employee turnover rates by sector

• Hospitality – 37.6% (This is the industry with the highest turnover rate in the UK)
• Retail – 33.6%
• Health and social care – 14.8%
• Financial and insurance – 12.8%

*These figures are based on research gathered by UK Money, presenting the percentage of employees who leave their jobs each year.

There is value in benchmarking your organisation’s turnover against the average for your sector, so that you can take action to support your strategic goals.

If your organisation’s employee turnover is higher than the average, you may consider this to be a negative indicator.

However, the answer isn’t as simple as high turnover equals negative, and low turnover equals positive.

Positive turnover

There are many reasons why high employee turnover may be a positive indicator for a business.

For example:
• You may have invested in new technology which will create efficiencies but cause a restructure of people, resulting in some employee churn.
• Or, you may be dealing with problems such as conduct or performance, resulting in employees leaving the organisation.

Fresh perspective

Some level of turnover is generally good for an organisation, because it can bring fresh ideas, talent and different perspectives:

  • Removal of possible negative influence’s within the business
  • Engaged employees.
  • Opportunities for innovation and growth
  • Improve the organisations performance.

Negative turnover

Employee turnover can cause a negative impact when your organisation is losing valuable people with critical skills.

There are numerous factors which influence skilled employees to voluntarily leave an organisation:

  • Reward: if your reward strategy is not sustainable for your people and/or is not competitive with similar employers, your organisation is at risk of losing skilled people;
  • Culture: toxic cultures within organisations are a huge motivator for people to move on;
  •  Job design: unstructured job roles can cause significant dissatisfaction;
  •  Leadership: various surveys conducted over the years demonstrate that almost half of people have left a job at some point in their career because of management;
  • Flexibility: people expect flexibility and a decent work-life balance and any lack of this will certainly cause valued people to look elsewhere.

Although there are both positive and negative types of employee turnover, it is generally preferable to keep your turnover rate lower, rather than higher, due to the cost of replacing leavers as well as the cost of lost productivity.

Research by Oxford Economics and Unum suggests staff turnover costs businesses an average of £30,614 per employee.

This includes an average cost of £5,433 for every person you need to replace.

Measuring turnover

The most common method of calculating employee turnover is by dividing the total number of leavers by the average number employees in any given period and then multiply by 100 to get the % rate.

Employee turnover % = number of employees who left in the period/average number of employees in the period x 100

To calculate your average number of employees, add the number of employees at the beginning and end of the period and divide by 2.

Average number of employees = [(number of employees at the beginning + number of employees at the end)/2]

Succession planning

In any case, if your organisation has high turnover and high attrition (attrition is where you are not replacing leavers, meaning a shrinking workforce), succession planning is key to improve. If you don’t plan who your successors are going to be and take necessary action, you’ll be losing skills without a plan to replace them.

How Moore Kingston Smith People Advisory can help you

If reading this has prompted any questions or concerns about employee turnover in your organisation, we are offering a free 30-minute consultation with one of our specialists to support you. Please contact us to see how we can help you and your organisation.

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